KANSAS CITY, Mo. ( TheStreet) -- Shares of H&R Block ( HRB) tapped a fresh 52-week low Wednesday morning after an analyst's downgrade. Oppenheimer analyst Scott Schneeberger downgraded H&R Block's stock to perform, from outperform, early Wednesday, citing a mortgage put-back overhang that carries potential headline risk for the tax preparer. H&R Block shares dipped to a 52-week low of $11.98 early Wednesday, before rebounding somewhat to a gain of 0.6% forty minutes into trading, to $12.43. The analyst also said the downgrade had to do with a lower fiscal 2011 earnings outlook on "significant" reinvestment of previously modeled cost cuts. Last week H&R Block posted better-than-expected quarterly results, and the firm said it did not have to add to its reserves set aside for claims related to its former mortgage business, easing investor concerns. CEO Allen Bennett said on a conference call with analysts that while investors seem to be concerned about the company's contingent loan repurchase obligations, that "seems to be subject to some speculation that is not based on fact." "We made no change to our aggregate reserve this quarter," Bennett continued. "Recent market speculation regarding potential losses does not relate back to any facts that we have observed. We have not seen any adverse change in our level of claimed payments." H&R Block set aside $243 million in the spring of 2008 for loan repurchases out of Option One. The company has not added to that level, Bennett said. "We believe our financial reserves here are adequate." Schneeberger noted at the time that "HRB had traded off this week on elevated volume on mortgage putback concerns," adding that "it recouped the week's losses on management addressing these concerns by providing incremental points of data."
H&R Block shares have been under greater pressure since the Treasury Department announced its new pilot program to give prepaid cards to Americans without bank accounts in order to receive their tax refunds. Schneeberger noted that Bennett increased the adoption of H&R Block's Emerald Card, a prepaid credit card it sells to customers who don't have bank accounts. Bennett said H&R Block would work to improve customer service in an effort to reduce the number of customers who walk out during a tax preparation session. In its recent quarter, H&R Block booked a loss of $130.7 million, or 41 cents loss per share, compared with year-earlier losses of $133.6 million, or 40 cents loss per share. Excluding one-time charges related to severance costs, adjusted losses from continuing operations were $114.8 million, or 36 cents loss per share, beating Wall Street's expectations for a loss of 41 cents per share. Analysts typically exclude such extraordinary items when forecasting earnings estimates. H&R Block's revenue declined by $1 million, to $274.5 million. Though smaller than year-earlier sales, H&R Block's top-line figure managed to best analysts' consensus call for sales of $265.1 million. Revenue from the firm's tax services segment did edge up though losses widened in that part of H&R Block's business. H&R Block competitors Intuit ( INTU), maker of TurboTax, and Jackson Hewitt Tax Service ( JTX) were mixed Wednesday morning. Intuit shares pushed up 0.9% while Jackson Hewitt was lower by 3.3%. Intuit is a member of the Business Software Alliance, which last week said it spent $480,000 in the second quarter to lobby the federal government on cybersecurity policy, data privacy legislation and tax issues. The BSA spent $380,000 lobbying in the first quarter, and $400,000 in the second quarter of 2009. -- Written by Miriam Marcus Reimer in New York. >To follow the writer on Twitter, go to http://twitter.com/miriamsmarket.
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